News and Articles

Business Owners May Be Liable for Business Debts and Transactions Through the Alter-Ego Doctrine

Erin Lloyd - Thursday, December 03, 2015

The chief purpose of forming a corporate entity is to protect the business owner’s personal assets. Incorporation protects these individuals from being held personally liable for their company’s debts and obligations. However, the use of corporate form is a privilege, and abuse of its protections can have serious consequences.

For example, when a corporate entity is so dominated by an individual that it primarily transacts the individual’s business instead of its own, it will be called the individual’s alter-ego and the corporate form will be disregarded to achieve an equitable result, Rohmer Associates v. Rohmer, 36 A.D.3d 990 (3rd Dept. 2007).

In order to prevail on an alter-ego claim, a plaintiff must establish that there was such a “unity of interest and control” between the individual defendant and the entity, or between two entities, that they cannot really be said to be separate. See Rohmer Assoc. Inc. v. Rohmer, 830 N.Y.S.2d 356, at *1 (App. Div. 2007). An alter-ego determination by a court does not technically make one entity vicariously liable for the debts of another. Rather, it results in disregarding the separateness of the entities as a legal fiction and treats them as one in the same entity for all purposes. This is applied to limited liability companies as well as traditional corporations.

“Alter-Ego” Liability Does Not Require a Showing of Fraud

It is not necessary to allege or prove fraud in order to pierce the corporate veil under the alter-ego theory. What is required is proof that a corporation is being used by an individual to accomplish his own and not the corporation’s business, and that the business owner’s control is being used to perpetrate a wrongful or unjust act. The question is whether the corporation is being used as a “shell” by the individual business owner to advance his own purely personal interests at the expense of another party, typically a judgment creditor, Port Chester Electrical Construction Corp. v. Atlas, 40 N.Y.2d 652 (1976). In making an alter-ego determination, a court is concerned with reality and not form. Wajilam Exports v. ATL Shipping, 475 F.Supp.2d 275 (S.D.N.Y. 2006). The focus is on the actual conduct of the dominating business owner and the impact of that conduct on innocent parties such as judgment creditors.

New York Courts Evaluate a Number of Different Factors

The factors relied upon by New York’s courts in applying the alter-ego theory include the use of alleged corporate funds for personal purposes, commingling corporate and personal funds, shuttling funds between personal and corporate accounts, the use of common telephone numbers and office space, using the corporation as a “shell” to advance personal rather than corporate interests, and otherwise abusing the corporate form.

When the use of an incorporation entity privilege of is abused, business owners may be held liable through the alter-ego doctrine in the State of New York. As with any legal transaction matter, individuals are encouraged to consult with an attorney before taking any official action, as every situation is unique and should be independently analyzed.

For more information, business owners can contact us here

Trackback Link
http://www.lloydpatel.com/BlogRetrieve.aspx?BlogID=13375&PostID=770315&A=Trackback
Trackbacks
Post has no trackbacks.

Recent Posts


Tags

Womens Rights $15 Minimum Wage U.S. Department of Labor Postnup New York Earned Sick Time Act graduate students Federal Contractors Prenup National Labor Relations Board AirBnB Facebook Privacy and Litigation Internet Law Department of Labor NYC Salary History Law Overtime Rules Executive Severance Wage Theft Protection Act Selling Business Immigration Status Pregnancy Executive Negotiation Arbitration Agreements Start-up Ventures Interview Series Sexual Harassment policy Trade Secrets Act Fair Work Week Legislation Employment Contracts Overtime Exemptions Domain Name Trade Secrets Freelance Isn't Free Minimum wage Fair Pay and Safe Workplace Executive Order Transgender protections Landlord-Tenant Law entrepreneur Fair Workweek Law employment discrimination lawsuits Mandatory Class Action Waivers Negotiating Paid Family Leave Business Law Non-Qualified Stock Options ACA Federal Acquisition Regulatory Council Browning-Ferris Case Web Domains federal Department of Labor Public-Sector Union Fees Apple vs. FBI Technology NYC Sexual harrassment law Attracting Investment I-9 Verification Right to Unionize Corporate Law Fair Play to Pay Act EEOC Filing Requirement workplace discrimination NYC Human Right's Law's Lactation Law Privacy Nanny Audit Criminal Record Credit Fair Labor Standards Act National Labor Relations Act Fair Chance Act sexual harassment training Business Tax-Deferred Savings LinkedIn Fair Labor Standards Act (FLSA) Westchester Safe and Sick Time Laws stocks Newsletter Payroll Scams NQSO Ban the Box Affordable Care Act Hairstyle Discrimination NLRB Joint-Employer Relationship Alter-Ego Doctrine Credit History New Address Worker's Rights Glatt v. Fox Searchlight Pictures, Inc. Employment Law Human Rights Law Federal Overtime Law Health Care Household Employees Nobel Prize commuter benefits Firm Announcements Westchester County implementing new leave laws Employee Salary Histories Unionization Trademark Law Intellectual Property New York City Human Rights Law Divorce Independent Contractor Workplace Requirements drug testing Unions Sexual Harassment Security Interns as Employees Housing Law Trademark licensing Glatt v. Fox Searchlight Pictures Employer Mandate #meToo NY payroll law Interns Employment Offer/Agreement Credit Checks Illegal rentals Real Estate Law marijuana usage

Archive

EDIT - blog-container - This controls the styles for the headings

EDIT - BlogTagCloud - Font style

description

  • EDIT  - post-body - Font style

EDIT - side-panel - This is the colour of the sidebar headings

Snap | BC Module - Blog - Blog Description

Snap | BC Module - Blog - Blog Title

EDIT - Snap | BC Module - Blog - Date - This is the date box style

EDIT - Snap | BC Module - Blog - Post Content - Font style

EDIT - Snap | BC Module - Blog - Post Title - Heading style

EDIT  - Snap | BC Module - Blog - Sidebar Content - Font style

EDIT - Snap | BC Module - Blog - Sidebar Title - Heading style

latest blog title snap text

 

Disclaimer: Nothing on this website is or should be construed as legal advice.
An attorney-client relationship does not exist with our firm unless a signed
retainer agreement is executed, and we do not offer legal advice through
this site or any of the content located on it. For legal advice for your
particular circumstances, please contact us directly.